Fannie may limit low down payment loans

by Ryan Smith19 Aug 2013

Fannie Mae could scale back its purchases of mortgages that require a 3% minimum down payment, according to a Wall Street Journal report.

Freddie Mac stopped backing 3%-down mortgages years ago, and now requires a minimum 5% down payment, according to the Wall Street Journal. Fannie, however, never stopped accepting the loans – although many lenders stopped offering them because of difficulty obtaining required mortgage insurance, the Journal reported.

A recent spike in the number of low-down-payment loans, however, has prompted a review of Fannie’s purchasing policy.

“We regularly review our standards and guidelines,” Fannie Mae spokesman Andrew Wilson told the Journal. “Any changes to our guidelines will be communicated to the market at the appropriate time.”

According to the Wall Street Journal, Fannie is now considering policies to limit the company’s purchase of 3%-down loans. One proposal would limit Fannie to purchasing the loans from housing finance agencies, which usually require home buyers to complete financial counseling.

The housing bubble was fueled in part by loans with little or no down payment, according to the Wall Street Journal. Low-down-payment loans are now limited to only a few loan products, like 30-year fixed-rate mortgages, the Wall Street Journal reported. Both Fannie and Freddie now require loans with less than a 20% down payment to have mortgage insurance or some other “credit enhancement,” according to the Journal.


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